Posts Tagged ‘leadership’

In the new “normal”, where volatility and disruption pervade, almost every business manager and investor faces a stark choice. Pray for a return to “gentler” times of old that almost certainly will never happen or hunt for new opportunities? If you consider, rightly, the latter the lower risk option, are you consistently investing time with people, who you know or suspect have a need for your unique value in these times? Start with:

The Oxford English Dictionary defines “Community”, when used as a mass noun, “the condition of sharing or having certain attitudes and interests in common”. Here is an unpalatable truth for a great many businesses, events and professional associations, who talk about building or nurturing a “community”, they really don’t have one. Why? They never have or no longer possess the right conditions for sharing (reciprocal value) and/or the community members have little in common with each other’s lives. Some falter after a brief life, others struggle on into a mid-life crisis or they reach a natural death. It is incredibly hard to sustain a community and build a powerful brand. Because it is easy start in a low-cost technological age, we shouldn’t kid ourselves it is the smart thing for us to do.

Back in 2014, HSBC triumphantly announced a dedicated pool of $200 million to fund an innovation team and direct capital to young entrepreneurial fintech businesses. It has made some small bets in the intervening years and housed 3,000 digital techies in a separate London building because in the words of then CEO-Stuart Gulliver “we have a cultural issue.” Yet these actions masquerade a more profound Board and Senior Management issue: a fierce split has persisted for over 5 years about the priority that should be given to innovation, and the probable return on the time invested.

If innovation, internal or external, is truly critical to the business or profit centre’s future, why wouldn’t it sit within individual P&L’s, and the accountability reside with the appropriate P&L leader? When large organisations persist in setting up innovation labs, accelerators and dedicated corporate venture units too often they are “divorced” from the cut and thrust of the day-to-day business. They point to an unspoken truth, innovation isn’t really a strategic priority for certain powerful voices and/or the environment is insufficiently supportive of bold ideas or foreign bodies. Which is it? Common sense dictates that those leadership issues must be fixed first BEFORE investing a dime on innovation initiatives.

Perhaps no international leader would be more grateful for some traditional “Lucky Money” at this Chinese New Year than Britain’s Prime Minister, Theresa May. Her recent visit to China generated positive headlines (£9 billion of deals, 2500 UK jobs) but the litmus test is to what extent are UK and Chinese private sector companies, particularly those under £500 million of enterprise value able to make significant strides in each other’s market. These companies are the engine of employment growth.

I remain highly skeptical about “symbolic success”, recalling a visit to the much heralded MG Rover plant in 2012, at the behest of a senior executive at the new Chinese owners, SAIC. A couple of months earlier, political leaders from the UK and China stood on the very same steps in Longbridge heralding this partnership as a symbol of new era in bi-lateral trade. Walk inside, and talk to British and Chinese workers as I did, and there were telltale signs of mistrust, viper tongues, and unflattering comparisons with the Japanese car makers welcome in the North East of Britain. One Chinese manager, Annie Qi, on an earlier planned visit, called me 5 minutes before the scheduled meeting time to cancel the entire meeting because she had to drop her kids off at school! “Sorry, go back to London” was the curt one-line response. Car assembly ceased, design continues but the heritage of the MG Rover brand has not been exploited some 10 years later by SAIC. Sustaining these relationships is highly complex and ambiguous, it is a very long game for those with deep pockets and deep pools of patience.

Attached to my Parents loggia at their country home is a retractable sunshade that provides welcome shade to the outside dining area. This winter, a bluetit created a nest in one end of the sunshade, the giveaway was a few cracked shells lieing on the cobbled stones below. This past weekend’s warm weather created the need to open the sunshade and from the nest flew three small bluetits with their Mother hovering nearby. Unfortunately, the cat spotted one of the chicks later in the afternoon and it didn’t make it back to safety.

A huge number of venture businesses are currently incubated in what appear to be “safe” homes for innovation (corporate accelerator, incubator and venture funds), yet the opposite is true. When the overriding “need” arises to focus on the corporate organisation’s key strategic area (sales growth, capital allocation etc.), many of those early-stage venture will be deemed irrelevant, too weak to survive or fall prey to others. Insurance, financial services and the broader “Internet of Things” businesses are particularly vulnerable, yet most people are looking in the exact opposite direction. No one can predict precisely when that might be but history tells us it will happen. What entrepreneurs would be wise to consider is:

Why is this the right home for us today, not when we started? (access to capital, talent, innovation, markets, leadership etc.)

What changes (foreseen or unforeseen) in the Corporate organisation’s circumstances (balancing short and long-term profitable growth and their investors’ demands) would dramatically change their opinion?

Are our preventative (lines of communication) and contingent measures (Plans B and C) sufficiently robust (speed and quality) to safeguard our firm and its’ investors future should our corporate support end at short notice?

Far too many entrepreneurs are so immersed in building their businesses today, they are overlooking the risks attached to “building a home within a corporate home”, at their peril.

My young daughter is going through a period of arriving in our bedroom unannounced in the middle of the night, oblivious to her propensity for sleepwalking or the dangers that lie in her pathway. In almost every high-growth or mid-market business I review for investors, there are instances where the firm is consciously doing things (excessive customer needs analysis), which result in the business “landing” in unfavourable locations (slower client acquisition times), and dramatically increasing the risk for investors (cashflow). Look around your business and ask yourself a simple question, “If it was my money at stake, what would we stop doing tomorrow or do more efficiently?” Then, “why do I not bring this to my direct report and colleagues’ attention?” It is easy to blame others but great businesses are built on high levels of personal accountability at all levels that have zero to do with how much I am paid or my title.

I am fascinated by the probable cause when owners, Boards and top management in mid-market businesses (US$10M to US$Bn), “don’t take the money” and shortly thereafter, end up with a failing or failed business. Specifically, when a serious offer is made for growth capital or even an outright sale of the business, and in the next 6-12 months after the refusal, the fortunes of the business partially or totally collapse. Nowhere is this more visible than today’s high growth private tech businesses (the infamous “unicorns”) and in an often overlooked area, service businesses with a powerful owner-operator or managing partner in a partnership structure.

The decision-making factors are consistent throughout. The business has deliberated carefully or taken an opportunistic approach to accepting external capital or key talent. What has varied is the owners’, the Board’s and/or top management’s judgement, resilience or trust over time. Faced with changing market conditions (regulation, technological and other convergent forces), a key client “win” or “loss”, rising/declining investor or trade interest and so on, there is a discernible change. They consciously ignore other’s prudent advice that they have implicitly trusted in the past (mitigating risk). They increasingly believe that they are “impregnable” in their market position (market hype or vanity investments). They allow common sense to be distorted by inflated but unsubstantiated talk (valuations, growth prospects, barriers to entry, unique technology etc.).

Having worked with six privately-held mid-market businesses over the past 3 years around the globe, who turned down offers and subsequently, experienced very public falls from grace (legal, e-commerce, hotels, gaming, financial services), the underlying “cause” in my experience is ultimately, poor leadership. It is people, not the business that have screwed up.

For my current and prospective clients reading this, who fear my strategic advice comes with a poison in the tail, rest assured I have had a great many more winners than losers!

Yet in the immediate aftermath of a partial or total business failure, there is a rush to assume that the firm’s opportunistic or conservative approach to accepting new capital or talent is the “cause”. That is inaccurate, and here is why. There are a great many successful businesses, who have been consistent in adopting diametrically opposed approaches to accepting external capital or ownership (in insurance, AJ Gallagher vs Hub International, in hotels, Peninsula vs. Fairmont Raffles, or in the premium art business, Christie’s vs Sotheby’s). In just the same way, sticking to niche products, services or geographies or constantly, adopting a diversification approach, is rarely the “cause” of failure.

Take great care in jumping to a conclusion. Profit is to be found, as many smart long-short investors have found, in looking out for a business owner’s, the Board’s and/or top management’s increasing false sense of security, the resulting changes in their behaviour and the positive/negative impact on their business and the competition.

Four years ago, I contributed to this International Business Times article on Brexit. The impoverished reporter, Moran Zhang, is now a highly paid equity analyst at a Boston asset manager. Life is good.

Unlike most forecasters, I am willing to be intellectually honest about my predictions!

#1 I suggested that there was a 70% chance the UK would be still in a reformed European Union. That reform hasn’t discernibly arrived, and from Wednesday, Britain is formally leaving.

#2 I suggested there was a 25% chance the UK would be part of the “outer rings of the European Union”. That will almost certainly be the end-game in some shape or form.

#3 I suggested Brexit would be a process, not an event. There would be no zero cut-off, which is exactly what is happening. The UK will still have commitments after the formal exit date, which it must or wants to keep, for example, security cooperation.

Where Are We Today? A 20% devaluation against the USD, a more attractive export environment, a stock market near all-time highs and near record low interest rates. Signs of inflation increasingly present in the food we buy at the local stores. By almost all measures, we remain in a largely attractive environment for inwards investment, consumer confidence, albeit productivity improvements are slow to feed through and personal debt levels remain high. There remain sharp geographical distinctions. A city state in London that has abundant foreign wealth slushing around, albeit not so much into £10M+ prime residential property but still seeking a home in private equity via funds or increasingly direct investment. A robust jobs market. In comparison, some of the provincial towns and particularly in Victorian seaside resorts, where prospects for commercial businesses and the local population are less rosy. High streets (or Main Street, as my American friends love to refer to it), is symbolised by abundant charity shops dispersed between closing down sales. Little or no meaningful investment into new economies and new careers. There is a visible political, economic and social divide.

Where Are We Headed? Does anyone really know? Of course not but that doesn’t stop us hazarding a guess. We are in for a minimum 18 months of fraught negotiation, where I think those in the strongest position (Germany) will push the case for a fair settlement with the UK and those in the weakest position, will stubbornly resist (France, Italy, Spain). Politicians will think with logic and act on emotion. Traditional enmities and grievances will be magnified. Leaving is not going to be easy for those remaining in Europe and the UK. Fault lines already visible in the UK, will become more adversarial. We have to learn not to take what others say literally but to take them seriously. That applies to those outside the political bubble, investors, businesses and those directly affected by the political decisions. It is a boom time for patient private capital that can look beyond the immediate volatility.

Life after Brexit for the UK, is also largely dependant on the speed and quality of the trading alternatives. Can the UK create or rather build powerful interfaces with non-EU members to attract abundant sources of capital, people and innovation? Can it manage that process while adhering to the need to control immigration? Probably so. The UK’s future relationship with US, China, India, Canada and so on, has two forks the public (trading agreements) and most importantly, the private sector, the ability of UK SME and mid-market firms, the largest net jobs creators, to open new foreign markets, to attract new sources of capital, to spur new innovation not simply solve existing problems and so forth. The headlines about large global employers shifting jobs are far less significant, yet the media doesn’t portray that story.

The real story is the skills, behaviours and experience each of us has to thrive in that environment. What are we going to do about it? What are we going to push our employers, employees and investors to do about it? What has got us to where we are today, is in all likelihood going to be insufficient in a post-Brexit UK.

My prediction is that in four more years, 2021, there is a 70% chance the UK is in a more prosperous position than we are today. I think there is a 20% chance that we are in a mildly negative position (period of extended sluggish growth). A 5% chance that we are in a disastrously worse position (serious recession, sharp contraction in spending).

I didn’t vote for Brexit but now we are where we are today. Private polling has shown that there is a “silent majority” (former “Remainers” and “Brexiteers”) determined to make a success of their lives. There will of course be the “Victims of Brexit”. Those who will link the decision to leave the EU to their current and future woes, while consciously disregarding their failure to personally reinvest in their own skills, behavioural traits and experience. Those, who absolve themselves from personal accountability for the decisions that are within their control.

In a letter to the Editor of the UK’s leading horse racing daily newspaper, Racing Post, James points out that without a “profitable growth” mindset and an investment alternative that reflects it, the industry is accepting certain decline. There is no “plateau”. In this case, The Jockey Club has chosen to sell a profitable business and an iconic racecourse, Kempton Park, for housing development under the smokescreen of further investment in the sport’s “new heritage”. What is really happening is a lack of vision, a lack of bold new ideas and a lack of leadership. Yet that doesn’t have to be the case, if racing’s rulers want to leave a meaningful legacy.

In an interview with ChronicleLive reporter Mark Lane, James explains why the risks of expansion are often overlooked as investors and management jump on the bandwagon of international growth, often with disastrous results.